Freddie Mac

Fannie Mae is cost cutting

Just got a newsflash via my email subscription to Inman.com, a real estate industry news source.

Fannie Mae has launched a pilot program in three markets in which it's only accepting offers on properties in its real estate owned (REO) inventory when they are first submitted online by agents representing buyers.

Test markets are Orlando, Detroit and San Diego.

According to Fannie’s press release, their goal is to “provide increased transparency and efficiency in the REO bidding process by providing buyer's agents with offer confirmations and allowing them to track the status of submitted offers.”

Fannie also says the move is an attempt to stamp out "property flopping" -- a fraudulent practice in which listing agents receive multiple offers but withhold one or more of those offers in order to help an investor purchase the home at a lower price.

Frankly, I think Fannie’s stated goals are complete B.S.

When I place an offer on a Fannie Mae property for a buyer client, I already get an email or verbal confirmation the offer was received. It’s true that tracking the offer status isn’t transparent. But the buyer & I either get a “yes” or get no answer. That’s not ideal, but it is simple. I don’t know about flopping. I suppose it could be a problem.

I think Fannie Mae is trying to do one thing, and one thing only: cut their operating costs. By cutting out the listing Realtor they’re lowering their cost to sell by at least 2% or 3% per home. With Republicans marching into Washington in January to take control of the House, the clamor to dismantle Fannie and Freddie will get louder than ever. I think this is a preemptive move to help The Two F’s claim they’re not as fiscally troubled as conservatives think they are, and perhaps bolster the Obama administration’s call to replace Fannie/Freddie with another type of government backed mortgage entity.

Time will tell!

If you hate the idea of government-backed mortgage programs, it’s interesting to note this: now that Fannie & Freddie are essentially government-owned, they’re free of the profit motive. That means they don’t have to chase market share and profits, which is what got them into trouble in the first place. If they were operating in the black but not keeping up with the rest of the mortgage market, wouldn’t that be acceptable?

If you’re a conservative, answer me this:

Why shouldn’t low-income people have the chance to own a small home? Do some people not “deserve” a home? Are only the middle class and above worthy of owning a home?

For most Americans, their home is the most valuable thing they own and is the way they provide retirement income for themselves. If nobody helps low income families buy homes and build wealth, aren’t we just going to support them on the taxpayers’ dime when they’re old?

What if Fannie & Freddie morphed into a small government-owned program, that provided budgeting & home ownership classes to low-income folks and gave them a chance to become responsible homeowners someday? What if the entity providing these mortgages was a charity? Or a church? Would that change your mind? 

What if the entity providing these mortgages was a for-profit business? Would you buy stock in that business to make their business model viable? Low income folks are usually also less educated, and more easily taken advantage of. So who should decide how much profit this fictional future mortgage company can make off of the low-income housing sector? Should it be unlimited?

I’m not trying to start an argument. (altho that might be kinda cool since we never feel we have enough blog traffic)  I’m seriously trying to get conservatives to talk to me in something more detailed than talking points. I’m sick up to my eyeballs of conservative talking points.  Chime in!

Jumbo mortgages

A jumbo mortgage is a home loan that’s too big (in dollars) to be sold to government backed agencies (Fannie Mae, Freddie Mac). The upper dollar limit for jumbos varies geographically but the general rule of thumb is a loan larger than $417,000 is a jumbo.

It seems to me that people who have money continue unaffected when there’s a deep recession in the American economy. I always joke: people with money are always economically safe, the truly poor can rely on welfare and charity, and the working & middle classes buckle down during recessions because they know they’re the ones who are really going to take a beating.

Be that as it may (or not)…   In an odd twist on normal, jumbo mortgages have suffered during the Great Recession. Usually they account for 18% of the real estate market, but according to a new Wall Street Journal (WSJ) report, jumbo mortgages were only 5% of the real estate mortgage market in 2009 and 2010.

Interest rates for jumbo mortgages have been high too, but are now back down to earth. The WSJ reports the average jumbo rate through the week ended Oct. 29 was 5.11%, down from about 6.14% on Jan. 1, 2010

It’s my experience that people who can afford to take out a jumbo mortgage expect to get a mortgage easily, with little trouble and few questions about their financial life. Beware, the New Normal is different, even if you’re wealthy. My favorite brokers and the WSJ story report that mortgage underwriting continues to be strict: Borrowers still need excellent credit profiles and must provide complete documentation and verification of income, unlike several years ago. Down payments of 20% to 40% typically are required.

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hat tip Relator John Wake for the inspiration and source article for this post

Fannie and Freddie caused housing crash?

Did Fannie Mae and Freddie Mac cause the housing debacle? Before we get to the answer, let’s all get on the same page about what Fannie, Freddie and FHA actually are.
Neither Fannie Mae, Freddie Mac or FHA is a bank, they don't lend money.  FHA insures loans and Fannie Mae and Freddie Mac are investors, they purchase loans from the banks who originate them as soon as they are "funded".  (source: the Examiner.com)

Look at the charts below and I think you’ll find that the people who scream that Fannie Mae and Freddie Mac caused the housing crisis are simply wrong. How can two companies that had the smallest share of the mortgage market have caused anything in that market? Other lenders - notably Bear Stearns, Lehman Brothers and the rest of that gang - were involved in the subprime mortgage world far deeper than Fannie and Freddie.

I’ll leave it to each of our lovely readers to decide whether the Fannie/Freddie bashers are stupid, lying or practicing world-class political spin.

mortgage originations by originator (I originally found these charts on Barry Ritholtz' The Big Picture blog)

See how the number of mortgages issued by Fannie and Freddie during the boom years of 2004-2007 dropped dramatically?

Meanwhile the number of mortgages issued by ‘private label’ lenders increased sharply. “Private label” in this context means companies like Lehman Brothers, Bear Stearns, Merrill Lynch, Goldman Sachs and Morgan Stanley.

Here’s the same data divided by mortgage type:

Mortgage originations by product type, 2003-2010

See all those subprime mortgages being offered by companies that weren’t Fannie and Freddie?

See 2004-06? That was the height of the boom; the market cooled after that. Fannie and Freddie lost market share during those years and Lehman, Bear and their friends made more mortgages every year.

This isn’t to say that Fannie and Freddie don’t have their problems. They do. They just aren’t guilty of causing the housing crisis.